The services sector, which has been the hardest hit by the pandemic, is estimated to grow by 8.2% in FY22. However, retail trade, hotels, transport, communication and services related to broadcasting still remain below the pre-pandemic level.
The Economic Survey 2021-22 says that the overall sector first contracted by 8.4% in 2020-21. During the first half of 2021-22, the services sector grew by 10.8%, given the Gross Value Added (GVA) of services crossed the pre-pandemic level in the second quarter of FY22.
Services exports, which contribute over 50% to India’s GDP, after the initial slump during the first three quarters of 2020-21, surpassed its pre-pandemic level in the fourth quarter of FY21. During the first half of this financial year, services exports grew by 21.6%, deriving strength from global demand for software and IT services exports.
While the pandemic has had an adverse impact on most sectors of the economy, the services sector has been the worst affected as its share in India’s GVA declined from 55% in 2019-20 to 53% in 2021-22.
The effect of the pandemic has been varied within the services sector, as non-contact services such as information, communication, financial, professional and business services have remained resilient, while the impact has been much more severe on contact-based services such as tourism, retail trade, hotel, entertainment and recreation, etc.
During the first half of 2021-22, the services sector received over $16.7 billion FDI accounting for almost 54% of the total FDI inflows into India. This is over 29% lower than the FDI equity inflows into services in the corresponding period last year. This fall was driven by the computer software and hardware sub-sector.
IT-BPM revenues up
The Information Technology-Business Process Management (IT-BPM) sector is a major segment of India’s services. During 2020-21, according to NASSCOM’s provisional estimates, IT-BPM revenues (excluding e-commerce) reached $194 billion, growing by 2.26% Y-o-Y, adding 1.38 lakh employees.
IT services’ share has been consistent for many years now. BPM services share remained the same at 19.8%, while that of hardware services slightly improved to 8.3%. In 2020-21, IT services, software & engineering services, BPM services, and hardware services earned revenues of $99.1 billion, $40.3 billion, $38.5 billion and $16.1 billion, respectively.